Mody, Ashoka and Taylor, Mark P., 1958- (2006) Regional vulnerability: the case of East Asia. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

Preview

PDF WRAP_Mody_twerp_776.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (244Kb)

Abstract

In a case study of six East Asian economies, we use dynamic factor analysis to estimate a regional component of the exchange market pressure index (EMPI) as a measure of regional financial stress. The extent to which this indicator is explained by regional economic and financial factors is interpreted as regional vulnerability to crisis. We find that regional external liabilities and exuberance in domestic stock and credit markets, as well as the US high yield spread, were positively correlated with regional vulnerability. Individual country EMPIs are also explained by regional factors, with country-specific factors and trade linkages playing little role.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Foreign exchange market -- East Asia, Factor analysis, Capital movements -- East Asia, International economic integration, East Asia -- Economic conditions
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	2006
Number:	No.776
Number of Pages:	28
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	Agénor, P.-R., Miller, M., Vines, D., Weber, A. (Eds.), 1999. The Asian Financial Crisis: Causes, Contagion and Consequences. Cambridge University Press; Cambridge, New York and Melbourne. Bank for International Settlements, 1998. Annual Report. Bank for International Settlements, Basel. Calvo, G.A., Mendoza, E., 2000. Rational Contagion and the Globalization of Securities Markets. Journal of International Economics 51, 79-113. Chinn, M.D., 1999. On the Won and Other East Asian Currencies. International Journal of Finance and Economics 4, 113-127. Chinn, M.D., 2000. Before the Fall: Were East Asian Currencies Overvalued? Emerging Markets Review 1, 101-126. Chinn, M.D., Dooley, M.P., 1997. Asia–Pacific Capital Markets: Measurement of Integration and the Implications for Economic Activity. In: Ito, T., Krueger, A.O. (Eds.), Regionalism Versus Multilateral Trading Arrangements. Chicago University Press, Chicago. Chinn, M.D., Dooley, M.P., 1999. International Monetary Arrangements in the Asia-Pacific Before and After. Journal of Asian Economics, 10, 361-84. Chinn, M.D., Dooley, M.P., Shrestha, S., 1999. Latin America and East Asia in the Context of an Insurance Model of Currency Crises. Journal of International Money and Finance, 18, 659–81. Corsetti, G., Pericoli, M., Sbracia, M., 2002. Some Contagion, Some Interdependence: More Pitfalls in the Tests of Financial Contagion. Unpublished Working Paper, Yale University, New Haven, CT. Corsetti, G., Pesenti, P., Roubini, N. 1999. The Asian Crisis: An Overview of the Empirical Evidence and Policy Debate. In: Agénor, P.-R., Miller, M., Vines, D., Weber, A. (Eds.), 1999. The Asian Financial Crisis: Causes, Contagion and Consequences. Cambridge University Press; Cambridge, New York and Melbourne. Cuthbertson, K., Hall, S.G., Taylor, M.P., 1992. Applied Econometric Techniques. University of Michigan Press, Ann Arbor. Davidson, R., MacKinnon, J.G., 1993. Estimation and Inference in Econometrics. Oxford University Press, Oxford and New York. Dooley, M.P. 1997. A Model of Crises in Emerging Markets. International Finance Discussion Paper no. 630. Board of Governors of the Federal Reserve System, Washington, DC. Dungey, M., Fry, R., Gonzàlez-Hermosillo, B., Martin, V.L. 2002. International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse. International Monetary Fund Working Paper no. 02/74. Dungey, M., Tambakis, D.N. 2003. International Financial Contagion: What Do We Know? Unpublished Working Paper, Australian National University, Canberra, ACT. Edwards, S. 2000. Contagion. World Economy 23, 873-900. Eichengreen, B., Hale, G., Mody, A. 2001. Flight to Quality: Investor Risk Tolerance and the Spread of Emerging Market Crises. In: Claessens, S., Forbes, K.J. (Eds.), 2001. International Financial Contagion. Kluwer Academic, Boston, MA. Engle, R.F., Watson, M.F. 1981. A One-Factor Multivariate Time-Series Model of Metropolitan Wage Rates. Journal of the American Statistical Association 76, 774-781. Flood, R.F., Marion, N. 1999 Perspectives on the Recent Currency Crisis Literature. International Journal of Finance and Economics 4, 1-26. Forbes, K.J. 2001. Are Trade Linkages Important Determinants of Country Vulnerability to Crises? National Bureau of Economic Research Working Paper no. 8194. Cambridge, MA. Forbes, K.J., Rigobon, R. 2001. Measuring Contagion: Conceptual and Empirical Issues. In: Claessens, S., Forbes, K.J. (Eds.), 2001. International Financial Contagion. Kluwer Academic, Boston, MA. Fratzscher, M. 1999. What Causes Currency Crisis: Sunspots, Vulnerability or Fundamentals? Unpublished Working Paper. European University Institute, Florence. Gertler, M., Lown, C. 1999. The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications. Oxford Review of Economic Policy 15, 132-50. Girton, L., Roper, D. 1977. A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience. American Economic Review 67, 537-548. Glick, R., Rose, A. 1999. Contagion and Trade: Why are Currency Crises Regional? Journal of International Money and Finance 8, 603-617. Goldstein, M., Kaminsky, G.L., Reinhart, C.M. 2000. Assessing Financial Vulnerability: An Early Warning System for Emerging Markets. Institute for International Economics, Washington, DC. Haley, B. 1978. The Healthy Body and Victorian Culture. Harvard University Press, Cambridge, MA. Harvey, A.C. 1989. Forecasting, Structural Time Series Models and the Kalman Filter. Cambridge University Press, Cambridge, New York and Melbourne. Hausman, J. 1978. Specification Tests in Econometrics. Econometrica 46, 1251-71. Jeanne, O. 1997. Are Currency Crises Self-Fulfilling? A Test. Journal of International Economics 43, 263-86. Kaminsky, G.L., Lizondo, S., Reinhart, C.M., 1998. Leading Indicators of Currency Crises. International Monetary Fund Staff Papers 45, 1-48. Kaminsky, G.L., Reinhart, C.M. 1999. The Twin Crises: The Causes of Banking and Balance-of-Payments Problems. American Economic Review 89, 473-500. Kaminsky, G.L., Reinhart, C.M. 2000. On Crises, Contagion, and Confusion. Journal of International Economics 51 (1), 145-168. Krugman, P. 1998. What happened to Asia? Unpublished Working Paper. Massachusetts Institute of Technology, Cambridge, MA. Masson, P. 1999. Contagion: Monsoonal Effects, Spillovers, and Jumps Between Multiple Equilibria. In: Agénor, P.-R., Miller, M., Vines, D., Weber, A. (Eds.), 1999. The Asian Financial Crisis: Causes, Contagion and Consequences. Cambridge University Press; Cambridge, New York and Melbourne. McKinnon, R., Pill, H. 1996. Credible Liberalizations and International Capital Flows: The Overborrowing Syndrome. In: Ito, T., Krueger, A.O. (Eds.), Financial Deregulation and Integration in East Asia. Chicago University Press, Chicago, IL. Mody, A., Taylor, M.P. 2002. International Capital Crunches: The Time-Varying Role of Informational Asymmetries. International Monetary Fund Working Paper no. 02/43. Washington, DC. Mody, A. Taylor, M.P. 2003. The High-Yield Spread as a Predictor of Real Economic Activity: Evidence of a Financial Accelerator for the United States. International Monetary Fund Staff Papers 50, 373-402. Mody, A., Taylor, M.P. 2004. Financial Predictors of Real Activity and the Financial Accelerator. Economics Letters 82, 167-72. Morck, R., Yeung, B., Yu, W. 2000. The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements? Journal of Financial Economics 58, 215-260. Rigobon, R. 1998. Informational Speculative Attacks: Good News is No News. Unpublished Working Paper, Massachusetts Institute of Technology, Cambridge, MA. Sarno, L., Taylor, M.P. 1999a. Moral Hazard, Asset Price Bubbles, Capital Flows and the East Asian Crisis: The First Tests. Journal of International Money and Finance 18, 637-57. Sarno, L., Taylor, M.P. 1999b. Hot Money, Accounting Labels and the Permanence of Capital Flows to Developing Countries: An Empirical Investigation. Journal of Development Economics 59, 337-64. Tanner, E. 2001. Exchange Market Pressure and Monetary Policy: Asia and Latin America in the 1990s. International Monetary Fund Staff Papers 47, 311-333. Taylor, M.P. 1999. Contagion and Trade: Why are Currency Crises Regional?: Discussion of Glick and Rose. In Agénor, P.-R., Miller, M., Vines, D., Weber, A. (Eds.), 1999. The Asian Financial Crisis: Causes, Contagion and Consequences. Cambridge University Press; Cambridge, New York and Melbourne. Van Rijckeghem, C., Weder, B. 2001. Sources of Contagion: Is It Finance or Trade? Journal of International Economics 54, 293-308.
URI:	http://wrap.warwick.ac.uk/id/eprint/1423

Request changes to a record

Actions (login required)

View Item